what is foreign institutional investment and how it is different from fdi?
In crude terms:
- FII= when foreign-players invest in shares and stockmarket.
- FDI= when foreign companies invest in India for manufacturing, production, sales etc. by themselves (100%) or by partnering with some Indian firms.
What's the difference? Which one is better?
- FII players pull out their money from stock-market even for slightest good/bad rumors and invest in in different country.
- That's why it's called 'Hot money' -was responsible for 1997 Asian financial crisis {2 marker in GS Mains Paper-I, 2007}
- In 2007, the 2 marker appeared because that year SEBI made some regulation in FII investment via participatory notes to control the hot-money.
- Also, there were allegations that Pakistan might use it for 'financial-terrorism' using FII via Participatory notes.
- Although there are tools such as Tobin Tax, to control the flight of hot-money. But still, For development, Governments want and prefer FDI and not FII. Because It's hard to pull out FDI once invested.
FDI is difficult to take back because of restrictions on capital account convertibility?
ReplyDeleteYes that is correct.
DeleteFII - Foreign Institutional Investor
ReplyDeleteFDI - Foreign Direct Investment
sir can i knw what are benifits we are going to get by FII & FDI
ReplyDeleteMrunal, Can u please explain, Link between DTAA- Paticipatory Notes and Mauritius ? Mauritius is a very small country, however, major share of foreign funds inflow to India comes from it ? Why does our Govt not take this seriously ? Thank You..
ReplyDelete